All businesses should review their expenses periodically.
Prudent expense management helps ensure that valuable cash resources are used wisely. And sometimes, a business may NEED TO reduce expenses as a matter of survival.
No matter what the circumstances, here are some Best Practices in reviewing and managing expenses.
1. Look first at non-core functions
When cost-cutting, focus FIRST on activities which do NOT directly generate a profit, that is, the non-core functions.
The core functions of your business drive revenue and profit, help you to differentiate yourself in the market and usually involve interaction with your customers. These core activities could be inefficient… but look first at the support (or non-core) functions including finance, legal, administration, the office, human resources, data processing, supply-chain management, and logistics.
2. Look for redundant activities
Every activity or initiative in a business has a lifespan. That means even a really beneficial activity will eventually become inefficient or redundant. Expense reviews are an opportunity to look for redundant positions or processes that can be eliminated or restructured.
3. Look into the future
When considering cost-cutting options, think longer term than just the immediate savings. If something is going to be discontinued in the future anyway, maybe now is a good time to bring it to an early close? For example, no point continuing to invest in your office, training programs or IT systems if these are to be discontinued down the line.
4. Be transparent with employees
Payroll may be the subject of cost cutting. It’s likely your employees have a good idea what is going on and an honest presentation of the facts will bring the best results for the organisation. Set reasonable expectations about the future to build a track record and trust.
5. Keep up some marketing presence
How the market perceives your situation is important. Completely ‘falling off the radar’ may raise questions among prospects, clients and referral partners. Maintaining a presence, for example, in social media is an inexpensive way to ‘be seen’ in the market.
6. Nothing is too small…
All of those ‘minor expenses’ add up. Don’t ignore office supplies, snacks, furniture and that fancy coffee machine.
7. Stop autopay
Sounds simple… but most businesses are paying for things without properly scrutinising whether they are adding value. Autopay makes this scrutiny even harder… and delays the cancellation of underutilised subscriptions.
8. Renegotiate outdated contracts
Look especially at suppliers where you have a long-term relationship. It may be time to revisit the pricing and terms of payment. Sometimes just asking the question about costs will trigger your suppliers to offer a better deal.
And maybe you’re paying for things you don’t need, like cell phones assigned to ex-employees or seldom-used printers or copiers.
Keep a record of all long-term contracts and set alerts so you can revisit these several months ahead of expiration. Then negotiate, instead of simply letting the contract renew with the original terms.
Should you undertake an expense review in your business? Follow these Best Practices as a way to generate more profit and cash.
If you have any questions, please feel free to contact our office.